HSBC will acquire the mutual fund business of L&T Finance Holdings for $425 million (Rs 3,250 crore). The deal values L&T Mutual Fund at 4.2% of its assets under management of Rs 78,273 crore at the end of September. Earlier this year, Sundaram Finance paid Rs 338.53 crore, amounting to 4.5% of assets under management, to acquire Principal AMC.
After completion of the deal, HSBC will merge the operations of L&T Mutual Fund with its existing asset management business in India.
“With an acquisition of this size, the asset management business will be a meaningful entity for HSBC in India,” said Value Research founder Dhirendra Kumar.
L&T Mutual Fund is ranked 12 out of 44 in the Indian mutual fund industry. Equity assets account for Rs 41,000 crore of the total cited above. HSBC is at 23 with assets of Rs 11,314 crore, of which equity accounts for Rs 4,264 crore. L&T Mutual Fund has 2.4 million active folios, is empaneled with leading banks and has a presence in 65 locations.
“L&T has a strong investor base with many of them in their equity schemes and presence in many geographical locations, giving HSBC access to a new set of investors,” said Kaustubh Belapurkar, director, fund research, Morningstar India.
A fund house can have only scheme in each mutual fund category. L&T MF has 29 open-end schemes, of which 17 are in common with HSBC and will need to be merged in line with guidelines. HSBC has a suite of international funds, including unique ones on climate change.
L&T entered the mutual fund industry in September 2009 by buying DBS Cholamandalam Asset Management. It acquired Fidelity MF’s Indian assets in 2012.
The Indian mutual fund industry has been growing rapidly as investors prefer financial savings to physical assets. The mutual fund industry’s assets under management have more than doubled to Rs 37.34 lakh crore in the five years to November 30.
Analysts at ICICI Securities estimate that Indian mutual fund assets under management will grow at 15% CAGR between 2021 and 2030 to touch Rs 100 lakh crore.
HSBC and Nippon Life Asset Management are among the few foreign asset managers to increase their presence in India. In the recent past, low profitability, thin margins and challenges in the domestic markets have led to several foreign players exiting the domestic mutual fund business . They include JPMorgan MF, Fidelity MF, Morgan Stanley MF, ING MF, Goldman Sachs MF, Blackrock and Deutsche MF.
While Edelweiss AMC bought out JPMorgan’s business, Deutsche Mutual’s assets were taken over by DHFL Pramerica, DSP took over Blackrock’s stake. Kotak Mutual Fund bought out Pinebridge AMC and Reliance MF acquired Goldman Sachs’ business, while Sundaram bought over Principal’s business.